Understanding the Costs of Consumer Durable Adjustments

13 Pages Posted: 10 May 2016

Date Written: July 2016

Abstract

This article examines whether adjustment frictions help account for the patterns of household consumption expenditures observed in the Consumer Expenditure Survey, namely, that the variance of log durable expenditure is four times larger than that of log nondurable expenditure for annual data and this gap substantially widens for quarterly data. Estimating a structural model of household consumption with nondurable and durable goods with the simulated method of moments, I find that the fixed costs associated with durable adjustments are important in matching the cross‐sectional moments. Using the estimated model, I also examine the response of nondurable and durable expenditures to income shocks.

JEL Classification: D12, D91, E21

Suggested Citation

Suzuki, Michio, Understanding the Costs of Consumer Durable Adjustments (July 2016). Economic Inquiry, Vol. 54, Issue 3, pp. 1561-1573, 2016, Available at SSRN: https://ssrn.com/abstract=2777790 or http://dx.doi.org/10.1111/ecin.12333

Michio Suzuki (Contact Author)

Tohoku University ( email )

Kawauchi, Aoba-ku
Sendai, 980-8576
Japan

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